There has been a lot of handwringing lately about why there are so many struggling nonprofits in San Antonio, with grant-makers, industry experts, and everyday citizens lamenting that there are too many new nonprofits popping up all over the city.
In large measure, and perhaps naively, I attribute this problem to the reality that merging a struggling nonprofit agency with a more established one is still broadly unappealing, if not repugnant. As author Thomas McLaughlin emphasized in Nonprofit Mergers and Alliances, “To some in the nonprofit field, the idea of mergers is scandalous and distasteful.“
In the for-profit industry, but more so in the nonprofit world, the M-word implies gross mismanagement, financial distress, or leadership failure. It follows that board directors rarely think of mergers as the powerful restructuring tool that they fundamentally are.
Consider the Metropolitan Chicago Nonprofit Merger research study, a multi-disciplinary investigation involving eight Chicago foundations, Mission and Strategy Consulting, and Northwestern University’s Kellogg School of Management. Upon analyzing 25 nonprofit mergers that took place in and around Chicago between 2004 and 2014, researchers found that 88% of both the acquiring and the acquired nonprofits reported being better off, with “better off” defined as increased net assets coupled with a greater impact. More broadly, this research study included a substantive list of success stories that provide a foundation upon which to erect a sustainable nonprofit merger, especially when the “usual suspects,” the compatibility factor or the process itself, make merging irresistible.
The usual suspects
The idea of a merger doesn’t ordinarily appear out of thin air – it almost always makes its way into boardrooms when:
- There is increased competition and proactive decision makers elect to reduce it by joining forces with other nonprofits
- An agency has had negative cash flows for at least two to three years, or when there is a consensus that a financial crisis is looming
- For two to three years, an agency has been unable to secure enough funding
- Another nonprofit makes a persuasive or mutually beneficial request to merge
- Decision makers feel strongly that merging is the best option to achieve growth
- A leading funder interested in resource optimization or synergistic collaboration demands that its grantees combine their efforts
The compatibility factor
It turns out that compatibility is a reliable predictor of success for nonprofit mergers. In other words, success depends heavily on whether the nonprofits involved have had any prior collaboration, have comparable missions, operate in the same geographical areas, and/or serve the same target populations.
For example, three geographically contiguous hospices, JourneyCare, Midwest, and Horizon, enabled the merged entity, also named JourneyCare, to expand its impact and gain tremendous competitive advantage in an industry where for-profit corporations had become dominant.
Another notable case involved Big Brothers Big Sisters of Metro Chicago. This merger brought together three youth mentoring agencies across Northern Illinois and Indiana and quite literally turned an insolvent agency serving about 100 at-risk children in 2005 into a stable multi-million organization providing great services to 1,800 at-risk children in 2015.
On a smaller scale, Boundless Reader, a school-based literacy program joined forces with a volunteer-based tutoring program, Working In Schools (WITS). And ever since, the merged entity has had tremendous impact on countless Chicago public school children. (Occasionally, though, mergers involve nonprofits providing complementary services to the same populations.)
When two or more nonprofits are deemed compatible and ready for a merger, care must be taken to ensure that:
- A proactive merger exploration committee is formed and tasked to produce an intent-to-merge resolution
- All mission and vision, programmatic, board of directors, executive leadership, budgets, and corporate structure matters are thoroughly addressed
- Current debts, bequests/endowments, grants and contracts, and any pending legal matters involving the merging agencies are carefully examined
- All stakeholders are engaged throughout the planning and negotiation process
- The merger committee enlist the services of experienced lawyers to produce an actionable merger agreement, once all the preceding steps are taken
Furthermore, and if experience is any guide, it appears that the overarching questions that executives involved in a merger ask revolve more around their own career outlook than the prosperity of the merged organization. Therefore, finding ways to integrate the senior staff of the acquired agency is paramount for success. As Michael Coughlin, former CEO of Arizona’s Children Association, put it, “If I were to do anything over again, I would be relentless in going back to people and asking: ‘How do you feel? What’s bothering you?’ If you do not have your senior management team with you, you are dead in the water.”
I think of a merger as a reliable friend that for some reason very few want to be seen in public with, or as an unpopular process for making a whole greater than the sum of its parts. If the overarching goal of any nonprofit operation is to achieve optimal impact at a competitive cost, we ought to come out of our real or imaginary silos to use mergers as a means for demonstrating to the San Antonio community of funders what synergy, stewardship, and real leadership look like.